Research for uSwitch.com found that nearly 540,000 borrowers are paying over the odds for loans below £5,000, with rates as high as 19.9 per cent APR.
Nick White, head of personal finance at uSwitch.com, commented: “Loans are undoubtedly the most cost effective option where a customer is looking to borrow large sums of money. However, with only a few exceptions the rates remain highly uncompetitive on small loan amounts.”
His comments follow research by Moneyfacts earlier this year which found that many loans were offered at much more than the “typical” rate.
Mr White said that small loans were worst for charging high interest and urged people to shop around as rates can be as low as 5.9 per cent.
However, without research people can end up paying an “unjustifiable” rate for loans and Mr White added that people should give consideration as to what they take out loans for.